How to Wholesale a Pre-Foreclosure

Question

My husband and I are wanting to get started in REI with very small funds. We figured the best way to do this is wholesaling (I know I've heard all the advice that it's harder than it looks). Luckily my husband is extremely smart and a very good people person. We think the best strategy for us in the Triangle of NC is to find pre-foreclosures and try to purchase directly from the person before it goes to auction. This gives us more time to find a rehabber to pay cash for the property (right??). We have our eyes set on one particular property that taxes have been neglected for approx. 3 years and built up a tax bill of a little over $10,000. Normally we would run from this, however, the home is actually worth $250,000 as is-the owners built the home in a very established neighborhood in North Raleigh in 1983.

I guess my question is...do we secure the home first under a contract with owners and then find rehabber or do we find cash buyer first? Also, would the delinquent tax bill scare off most cash buyers? From what I can tell on county website their vehicle taxes have also been neglected and when we did a "drive-by" look like they don't move from the drive-way...point being I don't think they will come up to date on their taxes at last minute and at the auctions here that we have gone to most of the time no one is there (investors) and the banks buy them all.

Ronnie Wilson · Answer

You should first find out from the county tax assessor the process for buying tax delinquent properties in North Carolina. Someone maybe even the lender has already paid the back taxes. Every state and county is different. Find a good real estate lawyer. A quitclaim deed neither states nor guarantees that the person relinquishing their claim to the property had valid ownership. In this case the owner does have valid ownership. The property taxes are the verification. So that will not work. How are you determining the FMV? Have you talked to the seller about the current mortgage on the property? You should make sure the property is assignable. If the current contract has a "Due on Sale" or other clause that prohibits assigning the property, you cannot wholesale this property. You will have to double close. Then you need to figure in the capital gain taxes that will need to be paid up front. Make sure to check your numbers to see if the deal works.

Bryant Moran · Answer

Good evening, Chelsey!

Problem isn't too big. I have the answer: Quit Claim Deed. Have him sigh a Quit Claim Deed on the agreement that you will pay his taxes + plus his asking price. (Subtract delinquent taxes from his/her asking price) You can do this via hard money lenders and still turn a profit when you wholesale, however, you will be doing a double closing as opposed to a simultaneous close. Double check with your state law and get a real estate attorney to verify your paperwork and game plan!

Happy investing! :)

Andru Sexton · Answer

@Chelsey Jimenez

How did this go?

Chelsey Jimenez · Answer

I guess this would be considered a tax lien...excuse me as I am still learning all of this :) So, I guess find out how much debt is actually still against the property, and see if the owners are willing to sell before their property goes to the tax auction?

Chris Martin · Answer

Are you going after tax liens or mortgage foreclosures? Two different animals.

I would guess that the property is encumbered to the point where a pre-foreclosure is not an opportunity worth pursuing. Regarding "...the home is actually worth $250,000..." maybe unencumbered, but without knowing the current debt load you really don't have a complete picture.

How to Wholesale a Pre-Foreclosure

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